The Spark

“The emancipation of the working class will only be achieved by the working class itself.” — Karl Marx

Russia:
Behind the Short-Lived Splendor of the Oligarches

Mar 30, 2006

The following article is largely excerpted and translated from an article appearing last April in issue #96, of Lutte de Classe, the political journal edited by the French Trotskyist organization, Lutte Ouvrière.

Mikhail Khodorkovski, once featured on the Forbes list of the 25 richest people in the world, has disappeared from the magazine’s pages. Repeatedly described as the epitome of Russia’s new capitalists who had “made it,” thanks to privatization of the economy, Khodorkovsky is today a detainee in a Siberian prison. He was given an eight-year sentence for “stealing state money through large-scale fraud and tax evasion, failure to submit to a judicial decision, endangering shareholder interests by using deceitful means, forgery, plundering other people’s property” and, above all, for standing in the way of Russia’s rulers: the bureaucratic clan supporting Vladimir Putin, Russia’s president. Khodorkovski’s oil company, Yukos, has been seized. His fortune is said to have declined from eight billion dollars to half a billion dollars in one year.

Khodorkovsky had gained control of Yukos back in 1995, when all of Russia’s economy was up for grabs. With the help of his close friend, Boris Yeltsin, then-master of the Kremlin, he managed to buy Yukos, valued at nine billion dollars, for a mere 350 million.

In fact, most of the dozen extremely rich individuals who had apparently grabbed hold of the choicest cuts of Soviet state properties in the late 1990s, boasting they could make and unmake Russian governments, are now on the sidelines or in prison or forced into exile.

This does not mean that the robber barons of the Yeltsin era have all disappeared under Putin – in any case, not their clans and the interests they represented. Putin may have been able to toss aside some of those who, under Yeltsin, openly appeared as the conquerors of a weakened Russian state. He was also able to re-divide the privatization pie, giving more to those who felt cheated before, especially those from the clans he is linked to. But he could not suppress the big bureaucratic machines with strongholds in the state apparatus. Collectively controlling whole chunks of the country’s economy, they have transformed entire sectors of the economy into private fiefdoms. The super-rich individuals who publicly appear to direct everything are only their faithful representatives.

In the 1990s, when they were stealing their first billions, when the bureaucratic clans fought each other for the control of state property, these predators were often described as great financiers and captains of industry. They were said to be the living proof of the emergence or even reinforcement of a “new Russia.” Some commentators went so far as to say that this “new Russia” had completed the transition from the planned, state-run Soviet economy to a market economy, based on the pursuit of profit.

In fact, 15 years after the fall of the USSR, many things have changed. The state under Putin seems more powerful than under Yeltsin and more able to shift the balance of forces in its favor, away from the bureaucratic clans that control different economic spheres. But what’s most striking in these changes is that in the relationships between the economic and the political spheres, despite all the ups and downs, political power ultimately remains in control. It still rules and its decisions determine all the rest – which is the reverse of every other country having any weight in the global economy.

The First Russian Privatizations

Obviously, greed was the prime mover for the horde of bureaucratic wheeler-dealers and gangsters who attacked Soviet state property. This greed is as old as the bureaucracy itself. In the past, the bureaucrats controlled their greed, fearing the proletariat’s reactions. The bureaucracy was well aware that it had usurped the workers’ power and was living as a parasite off the workers’ conquests. Reflecting that fear, the dictatorship at the political summits of the bureaucracy imposed its control over the rest of the bureaucrats, large and small. However, after Brezhnev’s death in 1982, the open struggle for domination within the higher bureaucratic circles weakened the central power.

In the struggle between Gorbachev, who became Secretary General in 1985, and his rivals in the political bureau, no supreme arbiter emerged able to impose his authority over the entire bureaucracy. This allowed different groups of bureaucrats to offer their support to various members of the party’s hierarchy competing for central power. Such a situation weakened the central power. The central power was unable to prevent bureaucrats at every level from accumulating their own little piece of political power; political power remained the key factor in a leading caste’s hold over the sources of wealth within their jurisdiction. This is why the part of the bureaucracy around Yeltsin quickly moved to privatize 240,000 state-owned companies, practically as soon as the USSR was officially dissolved in December 1991.

Some imperialist institutions, like the World Bank and the European Bank for Research and Development (the EBRD), now criticize the Russian leaders for the way in which they privatized the economy. The EBRD reported in 2002 that productivity in Russian enterprises (most of which had then been privatized) was inferior to productivity at the time of the USSR. It also complained that “the pathologies of the Soviet era, corruption and economic delinquency, have become worse with privatization. And the accumulation of wealth has become closely associated with theft in ordinary people’s minds.” Today, some Western critics claim that the auctioning off of the Soviet economy is the cause of Russia’s present failure to function “normally” on the basis of private property.

These critics should remember that 15 years ago the imperialist leaders and a whole contingent of politicians, intellectuals, “experts” (notably those of the EBRD, IMF, World Bank) and journalists welcomed privatization as the “shock therapy” needed.

Never mind the lies of those who in the past promised Russia quick economic development if it privatized its economy, and those who today blame the social and economic breakdown of the country solely on the “mistakes” of Russia’s leaders. Not only has the Russian economy failed to develop on the basis of private property, it has gone through 15 years of steep decline, as has the standard of living of most people. Moreover, characteristics associated with underdevelopment have increased: production has declined, and it is centered essentially around the export of raw material; capital is fleeing the country (200 billion dollars in the 10 years between 1994 and 2004); inequalities between the cities and the countryside as well as between different regions have been aggravated. One Russian out of five survives on less than two dollars a day, with most of these desperate people living in the countryside. But Moscow has more billionaires, 33 in 2004, than any other city except New York.

This situation has deeper causes than those put forward by the Western world’s financiers and political leaders. The real causes are to be found in the history of the USSR and of present-day Russia, in the history of a society dominated by a bureaucracy. The privatizations carried out by Yeltsin may have aggravated things, but they were a consequence of that history, not a cause.

Anatoli Chubais, who was in charge of the privatization program, has repeatedly explained that those who led the country after 1991 did not have much choice. Yeltsin and his clan were well aware that their new power was being strongly challenged from inside the bureaucracy itself in a state reduced only to the Russian Federation. They could not stop the parceling out of power, which had been going on for years, sapping the state and state ownership. In order to gain support from members of the state’s ruling circles, who had initiated and profited from the process, Yeltsin and his gang adapted to the situation, changing the laws so as to make privatization irreversible.

So Yeltsin’s government set up the legal framework for the greatest hold-up of the twentieth century: the seizure of the properties of the former Soviet state by the bureaucrats. This allowed the top bureaucrats in the economic sector to use their power in the Russian Federation to seize private control of the plants. They were only imitating what had been already done by bureaucrats at the head of the 15 other former republics and regions coming out of the defunct Soviet Union. These bureaucrats had already broken up the USSR and grabbed their own share of the pie, taking control in their fiefdoms – only to confront secessionist tendencies from local bureaucrats inside their own republics. Privatization was to deal a devastating blow to the economy.

As early as 1992, the new Russian power announced a “massive privatization.” At the beginning, the changes affected only the small and medium-sized companies, which usually ended up in the hands of the managers in charge. The process was sometimes hidden behind the fiction of workers’ ownership when each Russian received a “privatization coupon.” In other cases, the companies ended up in the hands of local politicians.

The Privatization of a Ministry

At the same time, the biggest enterprise in the country was privatized. The apparatus of what was called the Ministry of Natural Gas at the time of the USSR (with its numerous top and mid-level bureaucrats) decided to privatize the entire network and created Gazprom. The employees received 15% of the shares; another 35% were sold to a very few people who had the approval of the ministry and other official regional bodies. For very little money and virtually no risk, these people were able to obtain control over these enterprises. The state apparatus kept the remaining shares. With a very small investment, the vast ex-Soviet bureaucracy at the head of the natural gas sector kept control. But now it was a privatized sector. The entire transition was eased through by the new prime minister, Viktor Chernomyrdin, who had been the former Soviet minister in charge of the natural gas sector.

Time and other magazines called Chernomyrdin “the richest man in Russia.” They were trying to describe Russia through what they know of the rest of the world. And in their search for sensationalism, they claimed that Chernomyrdin owned a decisive share of the assets of the world’s number one gas company. Perhaps it looked this way on paper. But his shares meant something else in the social and political reality of Russia. Despite private ownership, when Chernomyrdin was defeated by Putin, the next rising star, he was kicked off Gazprom’s executive. He was replaced by someone who belonged to the St. Petersburg clan that backed Putin and who, like Putin, had close ties with the KGB’s political police and the secret services, whose leaders resented that they had not received a proper share of the spoils under Yeltsin.

The Emergence of Billionaire Bureaucrats

Yeltsin’s privatization of state property came to a head after 1994, when he decided to sell giant industrial plants that nobody seemed interested in. Not many people, except those in charge of these plants and the local bureaucrats, wanted to manage businesses set up to function within the framework of the USSR, with its planned system of centralized regulations and orders, material allocations and financial subsidies. The disappearance of the enormous USSR put an end to economic planning and crippled these plants. The central state no longer had the means to make them function properly, nor could foreign or Russian investors. Even if some investors had been interested in these giant conglomerates, they would have been forced to break them down into smaller units in order to make them function on the basis of profit, thus laying off a big part of the workforce. This is what local authorities tried to avoid – not out of concern for the local population, but out of fear of provoking an angry reaction against themselves.

Most of the time, after privatization took place, these enterprises were still headed by bureaucrats formerly in charge of running the economy and the regional government – bureaucrats who had the direct or indirect backing of a faction of the state apparatus.

Things were different in the more profitable export sectors (oil, aluminum, nickel, etc.). A genuine war, with real bullets, was fought between bands of police and of gangsters supporting one or another of the different clans. The outcome of the fight for control of the richest pieces of the economy was determined by an increasingly ill Yeltsin or by other members of his clan – often called “the family.”

Those favored by the state apparatus bought up companies like Norilsk, the world’s number one nickel producer, for almost nothing. They laid their hands on oil companies and anything that yielded a quick profit, without investing a cent. The only thing required was to have connections at the top. Thanks to a program launched in 1994 called “loans against shares,” people like Gusinski, Berezovsky, Potanin, Aven, Deripaska, and the groups of political-administrative bureaucrats behind them, appropriated the more profitable sectors of the economy.

This did not reflect any individual success, as some commentators pretended to believe. Berezovsky did not become rich the way Rockefeller had become rich a century earlier in the United States. Commentators who compared them forgot that Rockefeller had climbed to the top of the heap as a captain of industry and a baron of finance in an all-out war against a host of competitors – capitalists who themselves had developed out of a fertile soil, where a multitude of companies, with their owners and shareholders, existed.

Berezovsky was not the product of a similar process. He was not based on the social ripening of a capitalist class made up of hundreds of big capitalists, thousands of middle-sized industrialists and hundreds of thousands of smaller fry. Such people not only existed before Rockefeller, Morgan and Du Pont de Nemours; their activity played an essential role in the emergence of the Rockefellers and others of their ilk. In the USSR, the big conglomerates and trusts controlling this or that sector of the economy were not produced by a natural evolution of the capitalist economy. On the contrary, they were produced by the deliberate policy of the Soviet state, a state whose social basis was established by the radical expropriation of the capitalist class by the proletarian revolution. After the collapse of the USSR, Berezovsky and others merely robbed the state-owned economy of its enterprises or even of whole industrial sectors. Their appropriation of state-owned property was made possible only because they had accomplices at the highest state levels; they were simply the visible part of the bureaucratic icebergs whose interests they represented.

Signatures That Change Everything

In the 1990s, the Russian government ran short of money and started borrowing from the businessmen-bureaucrats who had just plundered the state treasuries. The state promised to pay them back with inflated interest within two years. If the state defaulted, the enterprises were to become their own private property. The deadline was 1996, the year when Yeltsin ran for a second term. Opinion polls were unfavorable and he feared he would not be reelected.

The wealthiest wheeler-dealers of the country put their newspapers, their television networks and their money at Yeltsin’s service. In return for their help, he let them have all the companies they wanted, and gave one of them, Potanin, a post in his government. Berezovsky became a member of the Security Council. Berezovsky had acquired his wealth by selling cars abroad, at Western prices – cars he had bought from Russian car factories at Russian prices. Of course, he had to have the authorities’ approval to do this deal. He was also the first in Russia to sell cars on a subscription basis, taking people’s money without delivering the goods. He got away with this thanks to his protectors at the highest levels of the state. In association with Yeltsin’s son-in-law, he grabbed the foreign currency profits of Aeroflot, the Russian airline company. He also took control of the main state-run television network and bought the third largest Russian oil company for 100 million dollars; today, this company is said to be worth 15 to 20 billion dollars! He recently said in a televised documentary that under Yeltsin “the signature of a government official decided who owned what.” But that implied that a new signature could just as easily designate a new owner—as Berezovsky and his cronies were soon to discover.

The media no longer talk about the wretched exploits of the most prominent of these “nouveaux riches.” In contrast to the class represented by the “robber barons” of a century ago in the United States (Morgan, Rockefeller, Ford, etc.), who founded and developed the industrial and financial empires that characterize capitalism in the imperialist era, Yeltsin’s magnates have either disappeared or have adopted a low profile in relation to political power.

The financial crash of August 1998 marked the beginning of a new era for these dreadful heroes of Yeltsin’s epoch. The crash was a sequel to the international wave of speculation that had battered Asia’s financial markets the year before. It also came after a decade of plundering by Russia’s bureaucracy. With the collapse of the USSR, the workers, retirees, the ordinary people had become poor and desperate. The 1998 financial crash made their situation even more miserable. The petty bourgeoisie was also hit hard (even if since then it has recovered somewhat).

But as for the upper reaches of the bureaucracy and the top wheeler-dealers, the crash made them wealthier than ever. They came out ahead thanks to various financial mechanisms. After the ruble lost two-thirds of its value, they used it to reimburse the sums they had borrowed to speculate in state bonds. They didn’t pay what they owed to their employees and suppliers. Many of them declared their company bankrupt only to recreate it under a new name, with an official address in Gibraltar, the Virgin Islands or other tax havens out of the reach of Russian authorities. After raking in all they could inside Russia, the privileged layer of the system, confronted with a crisis they had partly caused, tried to transfer to foreign countries not only their loot but also the property of the companies.

Such large-scale plundering could not go on forever. The Russian economy was in ruins. The state was bankrupt in every sense of the word. At the highest levels, attempts were made to straighten things out. In 1997, Chubais sold off Sviazinvest, an old state-owned telephone company, in a way that was quite different than what had been done up until that time. It was the first transparent privatization. Instead of the usual members of the ruling clan, the highest bidder was an international consortium. This single operation brought the state more money than all its previous operations. The oligarches, who had wanted it for themselves, were furious and had Chubais fired.

The Economy and its Control by the Bureaucracy

In early 2000, Putin became president. His first message to the business world was more or less “pay your taxes, don’t interfere with politics and everything will be fine.” The state under Putin was no longer going to allow the wheeler-dealers to get away with what they had done before. To make it clear, Putin held televised meetings with Russia’s business leaders. Millions of viewers saw him publicly berating them. In the days that followed, the special police forces were shown carrying out raids on the headquarters of various conglomerates, run by a well-known wheeler-dealer accused of embezzlement or by another accused of tax evasion. The trials of Berezovsky, Gusinski and the high profile trial of Khodorkovsky were so many steps made by the central power to control the super-rich. But the state still could not control the huge bureaucratic machines that backed these wheeler-dealers.

Putin got rid of most of his predecessor’s favorites. He also neutralized those people who were not beholden to him or else, as in the case of Khodorkovski, wanted to remind Putin that he owed them his election. Ordinary people viewed the better-known of the bureaucrats favored by the Yeltsin regime as robbers. Putin hoped that by getting rid of a few of them, he would become more popular. Many members of the old bureaucracy, who had not become as rich as the Yeltsin- era billionaires, considered these billionaires as usurpers who had stolen privileged positions. Putin could easily get the support of these bureaucrats who felt they had been cheated, even while he gave the main political or economic posts to members of his own clan.

Some of the president’s men were called the siloviki, which refers to the fact that they were members of ministries that wield “force” (the army, the police, the secret services). Putin, who comes out of the KGB, is one of them. And he has relied on them for years. According to a study published in 2004, 60% of Putin’s close collaborators and a third of the top officials belong to these circles, as do the seven federal supervisors whose job is to control the governors of Russia’s regions. Other members of these circles occupy the posts of vice premier and defense minister and run the enormous military-industrial sector. One of them is president of Zarubezhneft, the company in charge of Russian oil operations abroad; another one heads Aeroflot, one of the world’s biggest airlines, another is at the head of Rosoboronexport, which exports military items; two others run Alma-Ante (anti-aircraft defense systems) and the central purchasing department for the military.

Not only the siloviki but also the so-called St. Petersburg clan runs things now. Putin was born in that city and studied there. That is where he was recruited by the KGB and, just before the USSR collapsed, started his career as a politician and wheeler-dealer, occupying the post of deputy mayor in charge of international economic affairs. The leaders of the bureaucracy have always rested on territorial fiefdoms. This is how Stalin recruited his first supporters against Lenin and Trotsky. He got the support of the “Tsaritsyn group” which he had created around himself in that town during the civil war. Brezhnev relied on the “Dniepropetrovsk clan,” named after the big Ukrainian industrial city where he had started his career as a bureaucrat.

In an article published in 2005, “How Putin Took Over Russia’s Economy,” Novaia Gazeta, a Russian newspaper, described the circles around Putin in the following way: “Personal friendships and the loyalty of the KGB and the clan are at the origin of Russia’s biggest holdings…. It is homogeneous thanks to the choices made by its leaders (who are all close to the president) and by its type of ownership (it is state-owned).” After saying that the oil and gas sectors, the military-industrial sector, the transports and the mechanical industry “are all-important for the future” and that “the most profitable branches are all controlled” by the president’s men, the article added: “Contrary to the oligarchs of the first era, the president’s friends don’t own anything. They control things.”

A Weak Bourgeoisie Faced with a Much More Powerful Bureaucracy

Most companies have been privatized. But even if the most important among them have a private status, they remain controlled by the men and the clans at the head of the state apparatus. When the G-8 energy summit took place last winter, presided over by Russia for the first time, Liberation, a French newspaper, characterized Gazprom as “a political tool in the hands of the Kremlin.” The newspaper thus acknowledged an even greater social, political and economic reality than the private form under which Gazprom was registered.

A liberal party leader, Grigori Yavlinsky, claims that democracy must play an integral role in the restoration of capitalism. He made the following comment on the role played by the central government in the privatizations in Russia: "Choosing one hundred people and proposing that together they control the economy does not give birth to a class of businessmen. No class is created, only a clan."

In Russia, the bureaucracy, which exerts its power in a clan-like functioning, confronts a weak bourgeoisie, unable really to develop itself – this is a permanent feature of the functioning in Russia. It is even a characteristic feature, showing what the country has become. It also explains the ease with which the most profitable sectors of the Russian economy, which have been privatized, have been appropriated by the high-ranking spheres of the state bureaucracy, those closest to the central political power.

The confusion over who actually owns these companies is significant. The Western media tend to confuse the individual heading a company with actual ownership. That person on paper may appear to have an impressive fortune as the owner of the company or group. But it is the clan that actually placed the person on top; without the support of the clan, that person would be nothing. Such confusion, when not purposely maintained in order to cloud the issue, is certainly understandable. It comes from the method of functioning of the dominant and leading layers, which has no equivalent elsewhere. Western partners of leading Russian groups often complain about this “opaqueness” (about who really owns what, or the actual difference between those who really control an industrial group and those who are its owners on paper). Westerners often cannot make heads or tails of Russian business dealings. Sometimes it is better not to know these things, and there are big risks in trying to find out. In July 2004, the director of the Russian edition of Forbes was murdered, just after the publication of an inquiry into the 100 largest fortunes in the country.

These fortunes are based on the control – rather than the ownership – of the most profitable sectors of the Russian economy. These sectors, in particular the export of raw materials, are essential to the recovery of state finances and more generally they pay for much of the government’s functioning. For example, 90% of Russian exports in 2005 consisted of raw materials. The taxes from these exports represented over half the federal budget. This explains why the central state so quickly tried to pry these sectors from the hands of the magnates formerly in power – whatever other reasons the bureaucratic clans closest to the central power had for trying to positioning themselves close to these sources of income previously monopolized by other leading clans. The 2004 Forbes study of worldwide fortunes found that two thirds of the fortunes belonging to Russia’s billionaires were derived from the export of raw materials. The same individuals – or rather the groups backing them – controlled 24% of the Russian GDP.

The export of natural gas, oil, diamonds, rare metals, and so on is of increasing importance in the Russian economy – in fact it has become the linchpin of the economy. If this has greatly enriched certain groups and individuals, it is also an important sign of under-development. But these signs of underdevelopment appeared or were seriously aggravated only with the disappearance of the USSR.

Before its collapse, although not at the leading edge of technology in many sectors, the USSR exported many more finished goods – if only to other countries in its sphere of influence – than Russia does today. Since that collapse, the Russian economy has worsened and taken on forms of underdevelopment, with its foreign sales of machinery and equipment, the only important industrial products to be exported, in a constant decline.

As in other semi-developed countries, highly dependent on the export of raw materials, the Russian economy has become more fragile, more vulnerable to the fluctuations of world markets. Furthermore, by putting a priority on the export of raw materials, the state reduces the possibility of developing other sectors, which could nurture a capitalist class of some weight. Potential private investors are aware that these other sectors are much less profitable than raw materials in the short and medium term.

The explosion in the price of fossil fuels enabled Russia to bounce back after the 1998 crash, but it has not reached the production levels it once had under the USSR. And despite the added income of the heaven-sent gas – under state control – and oil – most of which is back under state control – Russia ranks 82nd in terms of purchasing power per inhabitant, according to the list drawn up by the World Bank. It is lower than Mexico, Malaysia and Latvia (75th position) – a former Baltic republic under the USSR, which has no oil but which has been totally integrated into the functioning of the worldwide capitalist economy, in a subordinate position to the great European powers, of course.

Putin’s Russia is not as badly off as Yeltsin’s. Its largest cities sometimes resemble the metropolis of rich countries and according to Forbes magazine, which lists 793 billionaires in the world, 36 of them are in Russia, 7 more than one year ago. This incredible enrichment of some, like Abramovich, who after ranking 21st in the world rose to the 11th position in a year, is at the cost of the widespread impoverishment of the population, even if the explosion in the price of raw materials did mean that wages were paid more regularly. Wages have even increased in real terms, according to the official figures, at least: by 13.2% in 2004, by 8.7% in 2005. Sometimes, as on January 1st, there were big readjustments, such as the 130% to 150% pay increases for teachers and hospital medical personnel, whose salaries were even more pitiful than others. This was accompanied by a certain revival of a fighting spirit (strikes, demonstrations) in the working class, and more widely among the working population. During the winter of 2004-2005, they manifested their discontent against the results of a series of “reforms” which targeted the standard of living of the most destitute (withdrawal of health and transport subsidies for retirees, invalids and school-age children, and the privatization of certain social services, housing in particular.) There were demonstrations, and roads and rail lines were blockaded in over 70 of the 89 “subjects” (regions) of the Russian Federation.

Law on the Books – and in Reality

Fifteen years after the collapse of the USSR, the decisive industries in Russia’s economy still do not function on the same basis as does the economy in capitalist countries, where the private character of the ownership of the means of production is the determining factor.

This is not for lack of trying by the leaders of the bureaucracy in Russia. When the Soviet Union collapsed, they enacted laws authorizing private property in the means of production, of transport and exchange, and later even in land. In several waves of privatization, they auctioned off state property. But years after these upheavals, the new social relations that they initiated still have not been stabilized.

To make private property legitimate, recognized and inviolable, it is not enough to change the laws. Property is an expression of social relations. And in Russia, capitalist social relations have not yet been consolidated. With the re-establishment of private property in companies, the law anticipated an evolution that is still ongoing. The problem is, when one clan is in power, it may recognize “private property.” But if another clan comes to power, that “private property” can be taken away.

In capitalist countries, private property has been reinforced for a long time by laws, institutions and social mores. But in Russia, even though the private sector officially plays a major role (70%) in the economy, social habits go in the other direction.

In theory, the state apparatus is in charge of enforcing the law on privatization. Yet, as we have seen in Russia, the most distinguished representative of the state apparatus has often ignored property rights, especially when this concerned his constituents, the bureaucracy and his underlings. This was illustrated in the international court battle between the Kremlin and the shareholders and administrators of the Yukos oil company and its subsidiaries, based in Gibraltar. When the Russian police began tightening the noose around his neck, Khodorkovsky placed American citizens, close to the White House, at the head of some of his foreign companies, believing this would protect him. They organized campaigns in the Western media in support of the poor, mistreated Khodorkovski. And even if the media acknowledged that Khodorkovsky might be a hoodlum or a thief, they claimed that he was not unique, and that what counted was the right of property, even if it was obtained in a questionable way. Prominent political figures in the United States, the European Union, Canada, etc. also appealed to Putin, demanding he set Khodorkovsky free. An American court even denied a Russian tribunal the right to divest the magnate of his business. But despite the appeals of high officials, press campaigns, and court cases in the United States, Khodorkovsky was stripped of his control of Yukos and deprived of his freedom.

Those at all levels of the Russian state apparatus are systematically bribed in return for their influence and favorable rulings, including their interpretation of the right of property. In this respect, they are the living proof of the success of privatization... of the state and its functions. In Russia, everything, or almost everything, is for sale. Not only does this have a big impact on the population, who daily pay a high price for the bureaucracy’s greed; it is also a set-back for those who advocate returning to a market economy. In a document published in early 2006, François Benaroya explains that, “a market economy requires a State and non-market activities in order to function: judges, police officers... who are not controlled by money.” The concrete experience of this economist, who has worked regularly in Russia over the past few years, enabled him to write a “business detective story” titled Crimes without Punishments, in which leading bureaucrats and gangsters mingle and tear each other to pieces.

Russia is certainly not an isolated case, although as far as corruption is concerned, it is one of the most advanced. The difference is that in Russia, this generalized corruption is not grafted, like elsewhere, onto an already existing market economy, which more or less functions. Instead, this corruption is one of the aspects of the predatory way in which the entire bureaucracy functions. It is the expression of the fundamentally parasitic character of this social caste which developed, a long time ago, like a tumor on the body of the Soviet state, a workers state because it was the fruit of the victorious proletarian revolution of October 1917. But it degenerated because the socialist revolution, knocking on the door in many countries, was victorious only in Russia.

The establishment of a market economy is not exclusively a question of laws. Fifteen years after the collapse of the USSR, foreign investors continue to lament “the lack of visible property rights” or “the immense uncertainties weighing upon rights of property and the future of the oligarchs,” to use the terms in a study co-signed by “an expert in country risks” from Coface (a French administration that provides services and insurance for corporations that carry out international trade and investment). In the eyes of international capital, this uncertainty has created a major obstacle. Thus, foreign investment in Russia continues to be weak. As for the continual capital flight out of Russia, that is an indication that the Russian corporate owners and wealthy still have no confidence in their own system. They are certainly not ready to take the money that they stole in Russia, and invest it back in the country.

There’s an important aspect of the situation, which is found, not in law books or in the official land registers, but in the minds of millions and millions of Russian citizens. According to a national survey, which covered all categories and ages, 78% of the Russian population believe that the privatizations of the major companies needs to be reversed.

In the leading capitalist countries of the West, the development of a market economy took several centuries. The major dominant trusts did not come out of nowhere. They arose from an ever-expanding network of small, medium and large companies. In Russia, there are almost no small companies. In July 2005, Global, an in-house magazine of the Renault group, described the difficulties Renault had in setting up the assembly of several thousand Logans in a Russian factory. It was necessary to open a parts producer called Avtoframos, which is jointly owned by Renault and the Moscow municipal government, and this company only “assembles parts made in the Rumanian CKD center in Pitesti, situated 2000 kilometers away.” As the magazine noted, there are big “difficulties” in such a set up! Because the local supply of auto parts remains low – around 25% to 30% – Renault has not yet decided to invest. Renault, like its rivals, imports more cars into Russia than it manufactures there.

These numerous small and medium sized businesses do not exist in Russia, at least not yet. In developed capitalist countries, they not only constitute the skeleton, muscles and nerves of the economy, they also shape political and social life. They represent the values of the bourgeoisie (justification of private property, glorification of profit, etc.), values more or less accepted as “natural” by all of society under normal circumstances.

In order for the economy and society to function on a capitalist basis in Russia, ensuring that laws guaranteeing private property are applied, it is not just a question of law and the enforcement of those laws – and even this hardly happens, as Western investors in Russia deplore. More importantly, ownership rights must represent a social consensus and have a legitimacy that is recognized by the huge majority of society.

In Russia this is not the case, at least not yet.

Russia is not like those regions of the world, excluded from the general development of capitalism, where a market economy was introduced under pressure by the colonial powers or later by imperialism clearing the ground for its own trusts. Russia doesn’t fall in this category. It is not an underdeveloped country. On the contrary, through the workers revolution, it had escaped the backwardness in which czarism and the European powers had kept it.

The ruling circles, who have been the privileged social strata of the bureaucracy for years, are not at all ready to sacrifice all or part of their social privileges on the altar of imperialist penetration. Some of their members gain something from it. But most bureaucrats have more to lose than to gain. The problems Khodorkovsky encountered are linked to the fact that he harbored plans (in particular the construction of pipelines towards East Asia or alliances with American “majors”) which directly opposed the oil policies defended by the Kremlin, and apparently approved by the other Russian oil companies.

Even when the bureaucracy could gain some advantages – as it could if Russia joined the WTO (World Trade Organization) – the price appears too exorbitant. The bureaucracy would have to dismantle natural monopolies, such as gas, electricity, metals, which are controlled by high-ranking members of the bureaucracy who benefit greatly from them; it would also have to end the system of state subsidies for the manufacture of energy. Thus Russia is still not a member of the WTO even though it started negotiations back in 1992. Other countries, like China, already belong to the WTO, even though they applied years after Russia did. Last December, Putin refused the WTO’s demand that Western banks be allowed to set up subsidiaries in Russia, after this demand was met by a general outcry from the managers of thousands of Russian banks.

USSR, Russia: A Trotskyist Analysis, Which Remains Up-to-Date

For over three-quarters of a century, the Russian economy did not function according to the laws of profit and the marketplace. Instead, it developed on other material bases and with other relations between social groupings. It’s not reasonable to think that the deep traces of the social and economic transformations produced by the workers revolution in a country as big and as densely populated as Russia could be totally erased. The attempts to liquidate this heritage resulted – and could only result – in an immense social and economic step backwards. Under the current conditions resulting from this step backwards, the society that came out of the collapse of the USSR remains governed by a bureaucracy of the state apparatus, which is by far the main privileged social layer in the country.

From the start, our political tendency was formed based on Trotsky’s struggle against the Stalinist bureaucracy and its betrayal of communist ideals and of the conquests of the October Revolution. Trotsky carried out this struggle in his lifetime to help the workers who remained faithful to Bolshevism to find their bearings, given the betrayal of the working class by Stalinism; that is, his analysis was the act of a revolutionary militant. Trotsky summed up the development of the Stalinist USSR, a complex phenomenon, unprecedented and highly contradictory, in a formula which characterized the USSR as a degenerated workers state.

As early as the mid-1920s, much had changed in the workers state that had come out of the revolutionary victory of October 1917, beginning with the fact that the proletariat had been stripped of its power by the state bureaucracy, and that the leading Stalinist faction of this state bureaucracy had undertaken to systematically liquidate everyone in the Communist party who, remaining loyal to the Bolshevik ideas, could have opposed the bureaucratic reaction. The situation was so radically and permanently altered that Trotsky considered that the degeneration of the USSR had been completed in the 1930s.

For three-quarters of a century, the bureaucracy showed how fundamentally counter-revolutionary and anti-working class it was, both inside the country and in the international arena. With the collapse of the USSR, those who were at the head of the country took an even bigger backward step. In Russia, as in the other former Soviet republics, the bureaucracy’s leaders chose not only to extol the virtues of capitalism, but also to display policies blatantly aimed at restoring a market economy.

Now, 15 years later, many of the economic, political and social aspects of life would remain incomprehensible without a good understanding of the country’s history and what is special about this unique society. It would be impossible to understand what Russia has become if one forgets that this degenerated workers state, which is turning to capitalism, nonetheless retains features and characteristics of its past heritage. Despite recent changes, these characteristics have not all been eliminated. This is demonstrated, for example, by all the difficulties Russia encounters trying to function on a capitalist basis – even though it has opened itself to capitalism.

We would emphasize that the analysis we inherited from Leon Trotsky, his method and approach, is far richer than any other, enabling us to understand the forces and the blockages in this process.

Of course, at the time, Trotsky produced his analysis for revolutionary activists in the USSR itself, who had been at the head of the proletariat during its mass struggles. His analysis was meant to serve as their guide for showing the working class – if it was able to raise itself again despite the bureaucracy – how it could weigh upon events and play upon the contradictions in the degenerated workers state, in particular, the bureaucracy’s lack of roots in the economy.

This did not happen. Nor, over the last 20 years, did the working class in the ex-Soviet Union take advantage of the weakening of central power in order to seize the initiative.

Since the implosion of the USSR, and its subsequent movement backwards, everything that rendered Soviet society unique is fading away, not only in reality but also in people’s minds. What are also being effaced are the tasks and the objectives that Trotsky proposed in the “Transitional Program” to the revolutionary proletariat in a USSR dominated by the bureaucracy – tasks and objectives that would have been important to defend during the weakening of Soviet society in the years preceding and following the collapse of the USSR.

If the proletariat does not become a political force once more, capable of offering humanity an alternative to capitalism with its increasingly catastrophic, irrational and anachronistic way of running the world, the question of why Soviet society and its state were so unique, will end up losing all significance.

For activists, the Marxist analysis serves to understand social reality in order to guide present action, rather than to try to predict what form barbarism will take for an entire period of history if the proletariat is incapable of playing its role in the necessary transformation of society. In any case, the question would concern much more than the future of Russia.